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Weingarten Realty Investors (NYSE:WRI)

Q3 2011 Earnings Call

October 31, 2011 11:00 am ET

Executives

Johnny L. Hendrix - Chief Operating Officer and Executive Vice President

Andrew M. Alexander - Chief Executive Officer, President, Trust Manager, Chairman of Executive Committee and Chairman of Pricing Committee

Stephen C. Richter - Chief Financial Officer and Executive Vice President

Robert Smith - Senior Vice President of Development

Kristin Horn - Director of Investor Relations

Analysts

Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division

Christy McElroy - UBS Investment Bank, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Christopher R. Lucas - Robert W. Baird & Co. Incorporated, Research Division

Ki Bin Kim - Macquarie Research

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Quentin Velleley - Citigroup Inc, Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Carol L. Kemple - Hilliard Lyons, Research Division

Operator

Welcome to the Weingarten Realty Third Quarter Earnings Conference Call. My name is Matt, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Ms. Kristin Horn. Ms. Horn, you may begin.

Kristin Horn

Good morning, and welcome to our third quarter 2011 conference call. Joining me today is Drew Alexander, President and CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; Robert Smith, Senior Vice President; and Joe Shafer, Senior Vice President and CAO.

As a reminder, certain statements made during the course of this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results could differ materially from those projected in such forward-looking statements due to a variety of factors. More information about these factors is contained in the company's SEC filings.

Also, during the conference call, management may make reference to certain non-GAAP financial measures such as funds from operations, or FFO, which we believe help analysts and investors better understand Weingarten's operating results. A reconciliation to this non-GAAP financial measure is available in our supplemental information packet located under the Investor Relations tab of our website. I would also like to request that callers observe a 2-question limit during the Q&A portion of our call in order to give everyone a chance to participate. If you have additional questions, please rejoin the queue. I will now turn the call over to Drew Alexander.

Andrew M. Alexander

Thank you, Kristin, and thanks to all of you for joining our call. I'm pleased to announce another quarter of solid operating results. Last quarter, we discussed the fragile and inconsistent economy, and today, we remain concerned with the strength of the recovery. Nevertheless, we remain focused on continued improvement at our operating properties and our solid operating results for the quarter are reflective of this effort.

We made great progress in increasing total occupancy with a 40 basis point increase over the prior quarter to 91.6%; this in spite of an additional 77,000 square feet of vacancy due to the Borders bankruptcy. We also continue to make progress on small shop leasing with a 40 basis point increase in this metric from the prior quarter. Leasing velocity has remained consistent, and the fallout of small shop tenants has declined, so both factors contributed to improved occupancy. In addition, we've also taken steps to further enhance our capital structure and liquidity. As Steve will discuss in greater detail, we closed on a $200 million term loan and amended our credit facility, both with attractive terms. Most importantly, we extended the term of our credit facility to 4 years with an additional one-year extension at our option, ensuring adequate liquidity to handle all near-term debt maturities. With so much uncertainty in the market today, our ability to access capital is extremely important.

As to our accelerated disposition program, Johnny will provide the details of our efforts in a little bit, but let me just reinforce our focus on our asset recycling initiative we announced at our Investor Day in April. We are making good progress but experienced some headwinds with the current turmoil in the CMBS market. While we won't fire sale these assets, we believe we will work through these market conditions and continue to successfully execute our strategy.

I'll now turn the call over to Steve to discuss our financial results.

Stephen C. Richter

Thanks, Drew. Weingarten reported funds from operation, or FFO, per diluted share of $0.01 for the third quarter of 2011. Recurring FFO was $56.2 million, or $0.47 per diluted share, for the quarter versus $0.44 for last year, resulting in an increase of 6.8%. Reported FFO was adjusted for $0.44 per share of noncash impairments and $0.02 per share for the write-off of unamortized debt costs resulting from the early extension and renewal of our revolver and arriving at recurring FFO. All these details are outlined on Page 5 of our supplemental package.

The $0.44 of impairments can be summarized into 3 basic categories: First, approximately $0.21 relates to our strategic plan to dispose of lower tier assets. After specifically identifying potential disposition properties and analyzing current market data, we have recognized impairments on properties we believe we are likely to sell over the next couple years as part of this initiative.

Second, we recognized $0.18 per share of impairment on our Land Held for Development. Our impairment testing includes obtaining new broker opinion of values for land in markets where we believe values may have fallen. In some cases, there may have been recent comparable market transactions, or we may have begun negotiations with potential buyers, in each case giving us indications that our valuations required a renewed look.

Finally, the remaining $0.05 per share of impairment relates primarily to properties within finite life joint ventures where we were required to assume liquidation at the end of the JV's life. As some of these charges are both in consolidated and unconsolidated joint ventures, we have included an analysis on Page 45 of the supplemental that identify where these charges reside throughout our financial statements.

We are pleased to announce that we extended and renewed our $500 million unsecured revolving credit facility. The facility has a 4-year term with a one-year extension at our option. The rate is LIBOR plus 1.25%, which is a decrease of 150 basis points from the previous margin of 2.75%. We also reduced the facility fee from 50 bps to 25 basis points. This clearly demonstrates how far the capital markets have recovered since February 2010 when we last renewed the revolver. This new facility is also a testament to our solid balance sheet and our outstanding relationships with our banking group. With all of the global turmoil, I am quite pleased to have this liquidity committed for the next 4 years. In August, we also closed on a $200 million term loan that allowed us to pay down the revolver, thereby providing additional capacity for future capital needs. This will provide us the flexibility to use the proceeds from our disposition program to pay off the term loan, which has a 1-year term. Like the revolver, the spread is 125 basis points over LIBOR but is prepayable at par after 9 months.

With respect to full year 2011 guidance, we are affirming the midpoint of our guidance but narrowing the range on recurring FFO per share to $1.75 to $1.79. We believe Same Property NOI will come within our guidance range of flat to positive 1%, and occupancy as projected will be up slightly by year end. At this point in the year, we don't expect to close any significant new acquisitions before year-end.

Finally, on dispositions, we do expect to exceed our original guidance, and we think we will end the year in the $150 million to $200 million range.

Moving onto 2012. Our preliminary guidance for recurring FFO is $1.81 to $1.91 per share. Since we have not concluded our annual budget cycle, we will provide more detail next quarter as to the specific assumptions used in this estimate. However, it is important to know that we are assuming $300 million to $400 million of dispositions and a 4% to 5% increase in Same Property NOI, which Johnny will address a little later.

Our global assumption for 2012 is a slow, mostly flat economy and retail environment, pretty much like we've experienced the last quarter or so. With that, I'd now like to turn the call over to Robert Smith to discuss New Development.

Robert Smith

Thanks, Steve. Things have been picking up in New Development. In late September, we closed on a 6-acre tract of land to construct a 37,000 square foot Whole Foods in Tampa, Florida. This is an opportunity we sourced for Whole Foods after working with them on their needs in this strategic market and reflects the strength of our relationship with this important customer. Construction should commence within the next 30 days.

Additionally, as discussed at our previous Investor Day presentation, we have been working on a development opportunity with a land owner in Arlington, Virginia. We're very close to finalizing joint venture documents for this outstanding 268,000 square foot shopping center anchored by Wegmans, one of the most successful supermarket operators on the East Coast. This project should be our entry into the DC market and is located adjacent to Fort Belvoir, an ever-expanding army facility just outside the Beltway. With nearly 66% of the center pre-leased and an estimated final investment of $67 million, we are very excited about this outstanding new opportunity that could commence in the fourth quarter. Those 2 projects, combined with the Kroger shadow-anchored center in Atlanta we announced last quarter, represent $80 million of additions to our development pipeline in 2011.

Considering the continued weakness in the economy, we are pleased with this activity. The company also continues to make good progress in leasing its existing New Development projects. For all developments in the pipeline, the comparable quarter-over-quarter increase in occupancy was 340 basis points. One continuing example of this progress is our development in Tomball, a suburb of Houston. Kohl's had a successful grand opening in late September, and Marshalls remains on target to open prior to the holidays. Combined with a signed lease with Ross, this new anchor activity is providing leasing momentum on both phases of this shopping center.

So overall, Weingarten's development platform is beginning to show once again the value creation that can be achieved through our strong retailer relationships and a conservative risk-adjusted program. And while local merchant developers are effectively out of the market today, we have maintained a core group of talented, experienced development folks with capital at their disposal, and we believe this gives us a real advantage.

Now I will turn the call over to Johnny Hendrix to discuss operations.

Johnny L. Hendrix

Thanks, Robert. Good morning to everyone on the call. While the equity markets continue to be choppy, our Retail operations have remained stable. We've seen slow but steady improvement and continued to perform within the parameters of the guidance we set out earlier this year. Clearly, the economic recovery we anticipated has been slow to develop, and even with news of the last few days, we believe it's likely we will continue to see a very slow recovery.

Interestingly, we continue to get positive feedback from our major retailers. Their sales have improved at a rate faster than the overall economy. We believe this is primarily due to the necessity and value-oriented nature of our shopping centers. The most recent comp store sales show increases of 5% for Kroger, 4.3% for Publix, 4% for TJX, 5% for Ross and overall Retail sales up 4.6% excluding gas according to the Census Bureau. Most of the retailers we're talking with still want to expand in spite of the overall concerns about the economy. Generally, we've not seen tenants pulling back on projected store openings, and most are maintaining store counts for 2013. This pullback may happen as retailers, boards and management teams meet to review future business plans but we have no evidence of a pullback today.

Highlighting the improvement in our portfolio is the continued increase in occupancy we produced this quarter. Retail end of the quarter at 92.8% leased. This is 20 basis points better than a year ago and 40 basis points better than last quarter. It's encouraging that for the third consecutive quarter, we saw a slight improvement in occupancy of not only our overall portfolio, but also our spaces under 10,000 square feet.

The occupancy improvements are a result of our disciplined leasing efforts and continued modest improvement with small shop fallout. During the quarter, we leased 419 spaces for $19 million in annual rent. This includes 162 new retail leases for $7.8 million in annual rent. 148 of those leases were for small spaces less than 10,000 square feet. This is pretty consistent with our production over the last several years. While the coastal markets continue to improve, we saw the best leasing production from our Raleigh and Atlanta offices this quarter.

As I mentioned, shop fallout has also improved. We lost only 92 shop tenants during the third quarter. Year-to-date, that's 20% less shop fallout than we've averaged over the previous 4 years. While this is better, it's still significantly higher fallout than prior to this recession.

Rent growth has remained flat all year. It was up 1.6% during the third quarter for our retail new leases and renewals. The increase was primarily driven by re-leasing of a supermarket in Phoenix where we realized a significant rate increase. Excluding that individual lease, we would've been down 0.4% for the quarter, which is where we've been all year. We’ve continued to emphasize occupancy over rent growth in the majority of vacant spaces so long as we can negotiate short-term leases or leases with rent steps. This decision is made by the leaders of our regional offices as they assess individual projects and spaces. I think I mentioned last quarter that around 70% of all the shop spaces we're executing today have less than 3 years of term or have rent steps. This provides revenue today and should allow us to capture upside rent when the economy improves.

Same Property Net Operating Income was down 1% for the retail properties. This is primarily influenced by the fallout of some larger boxes earlier this year. This drop was anticipated, and it's a matter of timing between the fallout and the 408,000 square feet of commencements we anticipate in the fourth quarter. We expect to end the year in the range we've guided between 0% and 1%. These same commencements will also help our Same Property NOI next year. As Steve mentioned, we're guiding between 4% and 5% for 2012. This is obviously a wonderful increase, albeit, slightly less than we were anticipating 8 months ago. A couple of issues affected our decision to make this change. First, at least until the last few days, the economic outlook have become much more negative. Although our fallout rate has improved, it has not improved as much as previously anticipated.

Second, as we worked through our disposition plan and identified properties that we intend to sell, some of these properties have strong Same Store NOI in 2012 largely because they had significant lease up. The timing of which we dispose our property is very fluid, and the related impact on Same Property NOI is difficult to predict. I'd like to touch briefly on our industrial portfolio. Occupancy was basically flat from last quarter at 87.9%, up a bit from 86.9% at September of 2010. Same Property NOI year-to-date is a negative 3.7%. This performance is generally in line with the industrial REIT sector. Clearly, we have some struggles. However, we believe that the bottom is behind us and that we can make some steady progress going forward. The industrial sector performance is more closely correlated to the economic recovery than our Retail business, so a lot will depend on how the recovery progresses. Industrial rents have dropped significantly. Given little new space has been added and as the economy improves and space is absorbed, there should be strong improvement in industrial rent and net operating income as we discussed in April.

Our Accelerated Recycling program continues to move forward. Most of the noncore assets we've offered for sale are smaller, lower tier assets. We talked a little bit about the profile of these properties at Investor Day, but it may be worthwhile to repeat that only 40% of the properties we're going to sell are supermarket-anchored, most of those independent supermarkets. The average base rent of these assets is 30% below the company average, and the properties we're selling are 89% leased. You can really understand the difference when we compare these assets to our select portfolio where 76% are supermarket-anchored, occupancy is 93.4% and they are primarily located in high-growth markets.

At the end of the quarter, we were under contract or negotiating contracts on 24 centers or land parcels representing a total sales price of $187 million of assets. Of these, $119 million relate to the 19-center portfolio we started marketing in May. We had hoped to kick-start our recycling efforts by disposing of a larger portfolio through a national marketing effort. But today, we believe we will be able to maximize our pricing, utilizing local brokers as local investors can better appreciate many of these properties. I'll reemphasize this will take some time. And as Drew mentioned, we remain committed to dispose of these secondary assets and improve the overall quality of the portfolio.

Quality acquisitions remain very competitive. Year-to-date, the company has closed $68 million of assets with a couple of smaller deals in negotiation or under letters of intent. We continue to actively participate in the bidding processes for the better quality assets that come to market in our target areas, but we will only buy assets that are accretive and improve the overall quality of the portfolio.

Finally, I wanted to say that I am confident we will continue to meet the challenges we face by continuing our disciplined focus on executing the basic fundamentals of our business. Drew, I think you’ve got some closing comments.

Andrew M. Alexander

Thanks, Johnny. The inconsistency in the economy has been concerning. And like most, we worry about the strength of the recovery going forward. On the other hand, we're pleased with the results we've achieved in this environment. Our occupancy was up nicely this quarter, and we continue to make progress leasing our small shop space. The commencement of many of these leases over the next few months will drive an improvement in our Same Property NOI, not only in the fourth quarter but into 2012.

We continue to make progress leasing our New Development projects and have been successful in identifying new opportunities. We also feel good about our disposition pipeline, and we believe we've made positive first steps to achieving our strategic objective of selling our secondary assets. I would also like to reinforce the strength of our select portfolio. 76% of the NOI of these assets come from properties with a supermarket anchor. These supermarkets averaged $478 per square foot in sales last year. The select portfolio is quality assets in trade areas with strong barriers to entry and Metropolitan areas that will continue to grow. As our disposition program progresses, we believe the quality of the select portfolio will become increasingly obvious. Thanks to all of the Weingarten associates who’ve worked so hard to achieve these results. Thank you all for joining the call today for your continued interest in Weingarten.

Operator, we'd now be happy to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Quentin Velleley with Citi.

Quentin Velleley - Citigroup Inc, Research Division

Just in terms of the asset sales, I think on the last call you'd spoken about the $400 million that you were looking at selling and there’s the $190 million on the letter of intent. I'm just curious as to the quality of that $190 million of assets versus the $400 million? Is it fair to say that you've sort of been able to sell some of the better quality assets? And I think you made the comment that you're going to keep some of the other assets and try to sell them through local brokers?

Johnny L. Hendrix

Yes, Quen, I guess -- I don't know that I would characterize the assets that are under contract as the best of the group. I think they're probably located in more metropolitan areas that the rest of them. And in that way, I guess, they would be better. They’re, for the most part, not supermarket-anchored shopping centers but again much smaller assets. And when you look at the demographics, they're pretty equal, I think, to the balance of the group of properties that we're planning to sell.

Quentin Velleley - Citigroup Inc, Research Division

Okay. And then just in terms of the industrial occupancy, I think it was actually up over the year but you’ve had that big drop off in Same Store NOI so I'm sort of just curious as to what's driving the big drop given that occupancy was up slightly?

Stephen C. Richter

It's principally bad debt, Quentin, as well as the timing of the occupancy. We’ve got a little bit more space in industrial than normal that is signed, but the leases haven't commenced yet.

Operator

And the next question comes from Christy McElroy with UBS.

Christy McElroy - UBS Investment Bank, Research Division

With regard to your 2012 guidance in getting to the 4% to 5% Same Store NOI growth target, can you remind us how much of that’s driven by currently uncommitted occupancy upside? And what's your comfort level with gaining incremental occupancy versus when you first provided the 5% target earlier this year?

Johnny L. Hendrix

Christy, this is Johnny. We -- in terms of the space that we have committed kind of going through that is signed and not commenced, I've got about $6 million that is coming in on -- in Q4 2011 and then about $4 million in Q1 2012. So I'm not sure exactly how much of a percentage that is, but that's basically the breakdown of it.

Christy McElroy - UBS Investment Bank, Research Division

And how much of it -- how much of the assumed upside comes from uncommitted occupancy upside?

Johnny L. Hendrix

Not much. I mean, I don't have that number exactly. And one of the things that we tried to say in the call -- in the script was that it's becoming more difficult to track as we're looking at properties coming in and out or properties going out of the portfolio with the dispositions effort, some of those would be positive if we didn't sell them, but we're going to go ahead and sell them.

Christy McElroy - UBS Investment Bank, Research Division

Okay. And then thanks for providing the small shop occupancy in the press release. Is that a leased percentage or a commenced occupancy number? And do you have enough visibility to give us a sense for what that number could be at year-end?

Johnny L. Hendrix

That is a leased percentage that we have in the press release. And, yes, I think it will be better. I'm not sure that it’ll be significantly better. I think we're going to continue to make some incremental improvements in 20 basis points, 30 basis points. I think that the key to that improvement, frankly, is the reduced fallout that we've seen over the last couple of months in the shop space.

Christy McElroy - UBS Investment Bank, Research Division

What's the commenced number for small shop?

Johnny L. Hendrix

Let me get back to you on that.

Operator

And our next question comes from Craig Schmidt with Bank of America.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

In looking at the supplemental on Pages 24 and 25, it seems like 2 reasons that are not taking place in sort of your recovery is the Mid-Atlantic and the Mountain region, and more specifically, it looks like Georgia and Nevada. I was just wondering what was the headwinds that you're facing there, whether it was overbuilding or weaker economies. And I noticed, Johnny, you had mentioned that Atlanta had an active third quarter.

Johnny L. Hendrix

Yes, Craig, most of that is driven by fallout. Those regions were more impacted by Ultimate Electronics and a previously terminated Borders and a previously terminated Home Depot. And that's really what's moving those regions as opposed to any sort of macroeconomic. We actually have been able to do quite well in re-leasing those properties. We just haven't been able to get them to producing rent yet.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Are they going to be taking occupancy in 2012?

Johnny L. Hendrix

Some of them, yes. Yes, we've run a good job on re-leasing both the Ultimate Electronics and the Borders stuff. I think you may remember we started the year with 6 Borders stores and we have letters of intent or re-leased 4 of those stores, and we've got letters of intent for 2 of the 3 Ultimate Electronics. They will probably be later in the year though.

Operator

And our next question comes from Nathan Isbee with Stifel, Nicolaus.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

I'm just -- if you can just clarify the same-store NOI guidance for 2011. I think you're tracking down about the 60 bps right now. I mean, that would translate to a pretty strong fourth quarter. I mean, much better than you've been doing. Are they going to get in, in time to get even to the bottom of the flat to 1%?

Johnny L. Hendrix

Nate, this is -- Yes, Nate, this is Johnny. It is our anticipation that we will be within guidance, and that we will get some stores open. We got some open late in the third quarter, and we have some that are opening this month. So we believe we're going to get there.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I mean, I would assume that you're probably -- the top end of your guidance reduction probably related to reducing some of the high end of that Same-Store NOI guidance. Is that a fair assumption?

Johnny L. Hendrix

Yes. I think what you're seeing is, is an economy that is not doing as well as we thought it would be in terms of our guidance for 2012. While the fallout is a lot better, it's certainly not as improved as we had hoped it would be. And while leasing is steady, it's not as strong as we thought it would be 6 to 8 months ago.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then if you can just talk about the retail same store from this quarter. I mean, the big box vacancies took place the beginning of the year, but you seem to have backtracked from the second quarter. Can you just talk about what happened there?

Johnny L. Hendrix

I think it's a lot of things, and I went through all the Same Property NOI stuff over the last week or so. It is many, many small things that are impacting it. Certainly, the timing of getting some of the stores open is significant, but also the number of the big shops that closed and the timing of all those is really what has impacted it.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Did some of those happen in the second quarter?

Johnny L. Hendrix

Yes, Ultimate happened in the second quarter and I think Borders happened late in the third quarter.

Operator

And the next question comes from Vincent Chao with Deutsche Bank.

Vincent Chao - Deutsche Bank AG, Research Division

Just a follow-up question on the dispositions for 2012, the $300 million to $400 million. Given sort of the CMBS market today and your decision to go more through local brokers, should we be thinking about that as more back-half weighted in terms of the sales?

Johnny L. Hendrix

Yes, the way we have looked at it is to basically have it done ratably throughout the year. I think we have made good progress moving forward, and I would think that would be the best way to model that.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. And then given your commentary about thinking that you can maximize the pricing via the local brokers. I mean, have your cap rate expectations on those sales significantly changed in light of a bad decision plus the slower economic environment?

Johnny L. Hendrix

I don't think that they’ve dramatically changed. I think that 6 to 8 months ago, I certainly would have thought that the secondary assets would be moving closer in tandem with core assets as far as the price increases. That hasn't happened. And so I would say we're looking at maybe some lower pricing that we had originally. And I think you're seeing that throughout the market. That noncore assets are generally not highly sought after, certainly, by institutional folks these days.

Operator

And your next question comes from Michael Mueller with JPMorgan.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Just want to go back to the occupancy for a second. So if you ended the third quarter at 89.8% on the retail side and you have about $6 million of annualized rents coming in, in the fourth quarter, another $4 million in the first quarter, where does the occupancy go by year end? Because I thought the earlier comments on the call was that occupancy by year end wasn't going to change all that much, wasn't expected to change all that much. So can you just try to walk us through the occupancy progression one more time?

Johnny L. Hendrix

Michael, I may not have articulated this very effectively, but I got about almost 1 million square feet of space that is signed and not commenced, and about 400,000 square feet of that’ll be commencing in the next couple of months. And that's where we're going to get the increase in same store. The amount of space that is leased -- the total amount of space that is leased is going to go up modestly, but that's -- again, with the lag between actually getting the stores open and leased, I think is maybe where I missed that.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

So the 1 million square feet is what comes online, becomes -- falls into the commenced category in Q4 and Q1, and that ties to that about $10 million of annualized rents? Is that the right way to look at it?

Andrew M. Alexander

Yes, 1 million square feet is what is sitting in a category that is signed and not commenced today total, and about 620,000 square feet of that will be commenced in the next 2 quarters.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay, got it. And that ties to that $6 million in line in Q4 and $4 million in Q1?

Andrew M. Alexander

Yes, yes, yes, sorry.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay, yes, no problem. And then last question, the dispositions, what sort of cap rates are being assumed for what's under contract and just for next year?

Johnny L. Hendrix

Yes, it varies by center, as you might be able to know, but it's somewhere around 7, 7.5 or maybe some of them are going to be 8, but it's going to be in that range.

Operator

Your next question comes from Ki Bin Kim with Macquarie.

Ki Bin Kim - Macquarie Research

Just a couple of quick follow-up questions. So the $300 million to $400 million of dispositions is fully in the 2012 guidance, is that correct?

Johnny L. Hendrix

$300 million to $400 million in dispositions is in the 2012 guidance, yes.

Andrew M. Alexander

Yes, that's correct.

Ki Bin Kim - Macquarie Research

And just turning to your debt maturities, it looks like you have a pretty decent amount coming due. What are your plans for your financing and your assumptions about rates versus what's in place?

Stephen C. Richter

In terms of the -- as we reported, we have the $200 million term facility that we closed, and then we renewed the revolver. So we can clearly have enough capacity the fund all -- even without any dispositions and I'll come back to that, to fund the 2012 maturities under the current revolver. So -- however, we plan on as we guided to have some, $150 million, $200 million of dispositions before the end of the year that will bring that number down and allow us more capacity and liquidity available there. In terms of pricing, we actually did the $200 million term loan to provide us that, so we are short -- that rate is a short-term rate right now. So in terms of going to the market with our disposition program, we don't really anticipate having to go to the long-term capital markets for -- to fund that because we obviously plan on dispositions.

Operator

And the next question comes from Carol Kemple with Hilliard Lyons.

Carol L. Kemple - Hilliard Lyons, Research Division

I just had a couple questions on the income statement. What led to the decline in G&A in the quarter?

Andrew M. Alexander

The decline in the G&A in the quarter is really our deferred comp assets; as those go down in value that's a reduction in G&A. You'll see a corresponding reduction in interest income that offsets that. That was about $900,000 of the reduction in G&A.

Carol L. Kemple - Hilliard Lyons, Research Division

Okay. Well, that was my next question. What happened to interest income? So you just answered that.

Andrew M. Alexander

Well, I mean, in total the decrease in interest income was because it's spread between G&A and operating and some capital. So it's $2.6 million of the interest income was from the deferred comp assets. And then you remember last year, we had the Sheridan bonds on our balance sheet that we refinanced earlier this year, so that interest income has went away also.

Operator

And your next question comes from Ben Yang with KBW.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division

You commented earlier that the impairments you took were obviously based on your view of current market values. And it sounds like you also took a look at the entire portfolio and not just the properties that are for sale. So just wondering if you could comment on how many any assets took charges, if the impairments are concentrated anywhere in particular, geographical by -- or by quality, maybe retail versus industrial? Just to give us some idea of where the portfolio's weakening the most.

Stephen C. Richter

I would say that we outlined the 3 different categories, and the vast majority is obviously, coming from the land held and the assets that we are attempting to dispose. The land-held numbers, those are purely a matter of declining market values for the assets held. In those, we probably had 5 or 6, 7 different adjustments on the land-held numbers. In terms of the properties, I don't remember exactly how many, we can get back to you in terms of how many assets in the 65 assets that we evaluated of the secondary assets that were included in the impairment number. My recollection is probably around 12 assets that were individually affected. And then on the JV side, there was only 2 JVs that we have in our portfolio that we had to evaluate from a finite life perspective.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division

But you did take a comprehensive look at the entire portfolio when you entered this process. Is that a fair assumption, or just the ones that were for sale?

Stephen C. Richter

No, under GAAP, you don't necessarily look at your entire operating asset, so to speak. So these were -- the focus was on the land held, obviously, where we had a contractual obligation of the JVs for finite life JV and then certainly, the assets that we intend to dispose of over the next year or so.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. So including the $300 million to $400 million that you plan for next year so, the likelihood of drilling out more impairments is pretty low at this point?

Stephen C. Richter

We believe that to be the case. There is a little bit of noise in the accounting world versus what I would call reality into what's included for some things like closing costs you're not supposed to impair for. And assuming that's a couple basis points on a transaction, we hope we're covered, but we could be off 1%, 2%, 3%, 5%.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then switching gears, any thoughts on how much the lower 2012 Same Store NOI guidance was affected by the lower expected dispositions for the year? Is there any way at all to quantify that on your end?

Stephen C. Richter

That's really difficult because of the movement of assets going in and going out. To be honest, we obviously haven't even, as you might expected, selling all these assets. We don't know the timing of which ones move in and move out. So we're doing it at a global -- a corporate level versus an individual timing perspective. So that's extremely difficult to get to that one.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. But is it fair to assume that you took a conservative stance in terms of coming up with that guidance?

Stephen C. Richter

We believe we did.

Operator

And the next question comes from Tayo Okusanya from Jefferies.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

In regards to the small shop tenants, could you just give us a sense of which tenants you're seeing out there that are still taking up space relative to other small shop tenants where there might not be at the same level of demand for space?

Johnny L. Hendrix

Sure, yes. We continue to see really a good demand in restaurants, whether it's family dining with some buffets or what we'd characterize as fast buys, Buffalo Wild Wings, Chipotle, Freebirds, Genghis, Starbucks, people like that. We also continue to see medical as a pretty significant group that's leasing space, primarily dental, but some doctors and also some other medical uses.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

On the restaurants, on any kind of -- are you seeing any slowdowns recently just kind of given some of the bankruptcy news that's going on in the casual restaurant space?

Johnny L. Hendrix

We have not seen a slowdown from restaurants at this point. There seems to be as many as we can find spaces for.

Operator

And next we have Rich Moore with RBC Capital Markets.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Steve, if I could, I'd like to go back to the impairment question. I'm looking at the list of joint ventures, which of those or was there just one, I guess, that you took the impairment in, in the joint venture?

Stephen C. Richter

Rich, I'd prefer not to identify specifically the individual JVs that were hit. There's -- we had very small adjustments in 2 of them. And just from a perspective, these are -- when I say small, we're talking about in aggregate, less than 2% of the value of those assets. So as you might suspect, those JVs were created at the height of the last cycle. And we have done the accounting adjustments, but there's 2 of them on that list.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. So you've reviewed those, Steve, all of the assets within each of those ventures, right? And so this is the only part that's impacted?

Stephen C. Richter

That's correct. We only have -- those 2 are the only 2 finite life JVs. The other ones are infinite life JVs.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay, good, I got you. And then looking over at the land side of the equation on Page 11, did you have to review everything in here? I didn't think you had to do that for land. Did you have to actually review the entire portfolio of land that you have here and make some changes or were there certain reasons you had to look at certain parcels or certain projects?

Stephen C. Richter

No, we looked at all of the land held where we felt like there's a potential of a diminution in value. In all fairness, on Page 11, you can see that list looks pretty long. However, it's easier for some of the assets that, quite frankly, are Phase 2 to a existing development or existing shopping center. But we've reviewed the entire portfolio.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. So really, from a land standpoint, you truly are done taking a look at potential impairments?

Stephen C. Richter

Assuming the market doesn't go further south, I would say, yes. But that -- I can't guarantee that, so to speak, Rich.

Operator

And next we have a follow-up from Vincent Chao with Deutsche Bank.

Vincent Chao - Deutsche Bank AG, Research Division

Just a follow-up question on the acquisition side of things for 2012, I apologize if I missed it. Is there anything baked in for 2012?

Johnny L. Hendrix

Yes, 2012, we're guiding $300 million to $400 million…

Stephen C. Richter

We have not given all the detailed guidance with regard to 2012 at this point, Vincent. The -- we obviously felt like we needed to give dispositions only because of the $300 million to $400 million is obviously a material number. And we also gave same-store only because the 5% that we had thrown out as our projections in the Investor Day last year seemed to be such a hot topic.

Operator

And next we have a follow-up from Ki Bin Kim with Macquarie.

Ki Bin Kim - Macquarie Research

If I could just ask that same question differently. I mean, coming in your way of tackling your guidance numbers, I mean, don't you have to implicitly include specific number positions, maybe you could give a big range, but I mean it probably wouldn't be 0 right?

Stephen C. Richter

On acquisitions?

Ki Bin Kim - Macquarie Research

Yes.

Stephen C. Richter

Yes, I don't think at this point the acquisition number will be material, quite frankly, because of where we see that market and given our activity this year. Unless that turns around, I would not anticipate guiding with a significant number and given where spreads are and our balance sheet leverage-wise, it's not like we can load up -- we would want to load up on a lot of acquisitions without putting on some type of debt. So the margins there are pretty insignificant when you look at 2012 anyway.

Ki Bin Kim - Macquarie Research

All right. And just a follow-up on the accounting question. How much of the $300 million to $400 million of assets you're planning to sell are categorized as held for sale?

Andrew M. Alexander

It's the number that's actually on the balance sheet. If you look at our supplemental, which is $122 million.

Ki Bin Kim - Macquarie Research

Right, but that's depreciated/impaired book value, not the $300 million to $400 million, that's based on a market value, right?

Andrew M. Alexander

I think it is, but the $122 million is a portion, and it's not even all of what we expect to close this year. So it's not the full $187 million, but it's a pretty good portion of it.

Stephen C. Richter

We can get back to you on that number as to exactly how much it is.

Ki Bin Kim - Macquarie Research

Yes, that’d be great and also I’d like to get the NOI associated with it?

Stephen C. Richter

Okay.

Operator

And next we have a follow-up from Rich Moore.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Steve, on the debt side of the equation, you have the $200 million term loan, and that's fairly short term in nature. And then I think $195 million roughly on the line of credit. I don't think you have enough in dispositions to pay those off. What are you guys thinking in terms of an unsecured note or something to that extent as the year turns?

Stephen C. Richter

You're saying I don't have enough in dispositions -- I'm not looking necessarily to pay off the revolver 100%, Rich. So I mean, I'm not looking to get floating rate debt down to nothing. We are a little strong right now. But for example, if you -- if we took the midpoint of our guidance of dispositions for the year at $175 million and took that against the floating rate debt, the floating rate debt gets down to about 15% at the end of Q3. Again, assuming you had closed those dispositions. So I'm not looking -- I'm not necessarily suggesting that we want to get totally -- eliminate the floating rate debt totally.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. And so what are you hearing in the marketplace right now about unsecured pricing or the potential of getting a notes-type deal done?

Stephen C. Richter

We can clearly -- obviously, there has not been a REIT bond transaction in a while, so I'm not real sure exactly what the premium -- new issue premium is. But in talking to the market, I think we could issue our 10-year paper somewhere in the 3.25 spread range. So if you assume a treasury – 10-year this morning was at, I think, 2.32 or something like that, you're talking about a 5.5 kind of coupon, in that range.

Operator

And your next question comes from Chris Lucas with Robert Baird.

Christopher R. Lucas - Robert W. Baird & Co. Incorporated, Research Division

Hey, Steve, just sort of a follow-up on that, and I apologize if you've already gone through this but what is sort of your thought process right now as it relates to paying off the term loan?

Stephen C. Richter

Again, Chris, I think we'll use the disposition proceeds to eliminate the term loan. And that was really the purpose of -- in addition to giving us a little bit more capacity in the interim, was to basically stay short, so we had a good use of proceeds when the term loan -- I'm sorry, when we sold those assets later in the year and into 2012.

Christopher R. Lucas - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then, Johnny, on the -- I don't know if anybody’s asked this and I apologize if it has been asked, but could you give us maybe an update on the junior box status given some of the additional hits that have occurred and probably progress that you’ve made on some of the boxes?

Johnny L. Hendrix

Yes, Chris, we, right now, are like 96.5% leased in our junior box category. So I think we've done pretty well in terms of getting that done. I think I mentioned earlier we had 6 Borders and we've got 4 letters of intent are re-leased for those spaces. We had 3 Ultimates, we have 2 letters of intent that are working on those spaces and those were the, I guess, the biggest boxes that we had. But I feel like we're in pretty good shape on the junior box spaces.

Operator

And I'm showing no further questions at this time. I'll go ahead and turn the call back over to you, Mr. Alexander.

Andrew M. Alexander

Thank you very much for your interest in the company. We'll certainly be around if there's other questions. I hope you have a wonderful Halloween. I'm sure we'll also see a lot you at NAREIT, and we look forward to that. All the best to everyone. Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

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